Extreme Networks Inc (EXTR) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, welcome to the Extreme Networks Q3 2012 financial results.

At this time all participants are in a listen-only mode.

Later we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr.

Jim Judson, CFO.

Please go ahead.

Thank you, Patrick.

Welcome to the Extreme Networks 2012 third-quarter conference call.

At this time all participants are in a listen only mode.

Following today's presentation, instructions will be given for the question-and-answer session.

On the call today from Extreme Networks are Oscar Rodriguez, President and CEO and myself, Jim Judson, the Interim CFO.

As a reminder, this conference is being recorded today, May 2, 2012.

This afternoon Extreme Networks issued a press release announcing the Company's financial results for the third quarter of fiscal 2012.

A copy of this release and a slide presentation of the supporting financial materials are available in the Investor Relations section of the Company's website at www.Extremenetworks.com.

This call is being broadcast live over the internet and will be posted on the Extreme Network's website for replay shortly after the conclusion of the call.

Extreme Networks wants to remind you that this conference call contains forward-looking statements that involve risks and uncertainties, including statements regarding the Company's expectations regarding financial performance, strategies, growth of customer demand, development of new products, customer acceptance of the Company's products, customer buying patterns and spending patterns, and overall trends and economic conditions in the Company's markets.

Actual results could differ materially from these projected in the forward-looking statements as a result of certain risk factors including, but not limit to, a challenging macroeconomic environment worldwide, fluctuations in demand for the Company's products and services, a highly competitive business environment for network switching equipment.

The Company's effectiveness in controlling expenses including the Company's cost restructuring efforts, the possibility that the Company might experience delays in the development of new technology and products, customer response to it's new technology and products, the timing of any recovery in the global economy.

Risks related to pending or future litigation, and the dependency on third parties for certain components and for the manufacturing of the Company's products.

The Company undertakes no obligation to update this information on the conference call.

More information about the potential factors that affect our business and financial results is included in the Company's filings with the Securities and Exchange Commission.

Throughout the conference call, the Company will reference both GAAP and non-GAAP financial results.

All of my comments will be non-GAAP except for revenue and the number of common shares.

Non-GAAP results excludes stock-based compensation, restructuring charges and litigation settlements.

There is a reconciliation table of GAAP to non-GAAP financial results in the slide presentation under the Investor Relations tab on our website at www.Extremenetworks.com and accompanying our press release.

After I review our Q3 financial results I will turn the call over to Oscar for some comments on the momentum we're experiencing with our products and some key hires we've recently announced.

We'll then open up the call for Q&A.

Q3 fiscal 2012 revenue was $73.4 million which was down $2.3 million or 3% from Q3 FY 11 and was down from Q2 FY12 $9.4 million or 11% which is in line with normal seasonality.

While we believe we have a stable pipeline of business in most countries, revenue was lower due to longer deal cycles, sales execution issues and purchasing delays in some regions.

The Americas revenue was $29.7 million and grew 1% from Q3 FY 2011.

On a quarter-over-quarter basis, the Americas was down 19% sequentially.

The Americas continues to be our strongest performing region this fiscal year, despite delays in some North America opportunities which did not close in time to convert to revenue during the quarter.

EMEA revenue was $31.5 million which grew 7% over Q3 FY11.

On a quarter-over-quarter basis EMEA was down by 3%.

In the year-ago quarter we began to see the initial signs of economic weakness in the region that have negatively impacted our performance this fiscal year.

Asia-Pacific revenue was $12.1 million and was down 28% compared to the year ago quarter.

Asia PAC revenue was down sequentially from Q2 FY12 by 11%.

APAC continues to perform below our expectations; however, as Oscar will discuss, we're implementing leadership changes to help refocus the region.

We experienced a modest improvement in gross margin percent during Q3 improving to 56.4% from 56.1% in our Q2 2012.

Our service margins continue to show improvement benefiting from our lowered overhead structure and reduced expenses associated with hardware maintenance.

Product gross margin percent dropped slightly due to less favorable absorption of overhead expenses on the lower volumes, but margins -- but product margins continued to show underlying improvement from an improved mix of new products and supply chain cost reductions.

Operating expense in Q3 decreased $3.4 million from Q2 FY12 to $37.3 million.

The two main areas that contributed to this decline in expenses were lower sales expenses, primarily due to lower commissions expenses associated with a lower product revenues, and lower R&D program expense as three new platforms; the BD8X, the E4G, and the Summit 440's became generally available for sale.

Legal and litigation expenses remained higher than normal through Q3 and we expect them to return to more normal levels in Q4.

Third-quarter operating income was $4.1 million or 5.6% of net revenue.

This was down sequentially from $5.8 million or 7% in Q2 FY12 but on substantially less revenue.

This demonstrates the leverage we have created in the P&L through our cost reduction efforts and the variable component of expenses this scale with revenue.

GAAP EPS for Q3 FY12 was $0.03 per share versus GAAP EPS of negative $0.07 a share in the year-ago quarter, which included a charge of $5.4 million related to inventory write-off.

Non-GAAP EPS for Q3 FY12 was $0.04 a share versus non-GAAP EPS of negative $0.05 a share in Q3 FY11.

Due to our improvements in operational efficiency and cost reductions, we have now achieved four consecutive quarters of positive non-GAAP earnings per share.

Turning to the balance sheet, total cash and investments for the quarter was up $800,000 to $147.2 million.

Accounts receivable increased $6.7 million in Q3 primarily due to shipments being more back-end loaded this past quarter than normal.

This led to a DSO increase from 43 days in Q2 to 57 days in Q3.

Despite the increase in DSO, 89.5% of outstanding AR was current as of the end of Q3.

As a result of the lower revenue, inventory increased by $1.9 million to $23.3 million, as we procured inventory to support anticipated orders that did not close or could not be shipped in the quarter.

At this point I will turn the call over to Oscar for his comments on recent customer wins with our new products and other market highlights.

Oscar?

Thank you, Jim, and I want to thank all of our investors for joining this call.

As we've discussed in past investor calls, we have been in the process of transforming Extreme to take a leading position among pure played networking vendors.

We have focused on structuring our business with a goal of consistently achieving double-digit operating income without the need for significant revenue growth.

With our cost restructuring activities now behind us, we are driving the customer and market awareness needed to position Extreme as a leading competitor in specific targeted vertical markets.

We have delivered a new portfolio of award-winning products that we believe are the best of breed in for the markets they serve and are targeted at some of the highest growth multi-billion dollar market verticals in the communications market.

We expect the combined effects of our award-winning products, the increased market awareness and our reduced cost structure will enable Extreme to drive growth in both revenue and market share.

Now we are focused on driving the sales execution needed to enable us to deliver revenue growth.

We expect revenue growth to provide increasing leverage to the bottom line and increasing free cash flow into FY13.

Over the past two quarters, I've described the ongoing development and customer beta testing of three product lines that are critical to our company's future success.

These include the Black Diamond X8 Open Fabric Switch, the E4G Cell Site Router Family and the Summit X440 Intelligent Edge product line.

I'm pleased to announce that these three product families, all based on the latest version of our Extreme XOS operating system, release 15.1, have successfully shipped to our first customers and initial feedback is very encouraging.

We have recently received significant publicity regarding the Black Diamond X8 product and we expect it to play a key role in positioning us for larger data center and cloud opportunities and to enable larger average deal sizes.

We successfully released the BDX8 at the end of February and have already won initial solid customer deployments.

In North America, Cray computer purchased BDX8 in support of their super computer deployments for the Blue Waters NCSA Petascale Computing facility.

The London Internet Exchange, one of the top five interchange points in the world, is deploying these switches in support of Internet traffic growth due in part to the added volume expected from the coming summer Olympics in the UK.

The BDX8 was also selected for deployment at one of the largest Internet exchanges in Central and Eastern Europe, at a major genetic research facility in the UK, and at T-Systems Multimedia, which is a division of Deutsche Telekom for their MMS core.

In China we also saw first deployments of both PetroChina's Geoexploration and Development Research Institute and at Sinopec's cloud computing center.

These key deployments leveraged the high performance, high density and low latency capabilities of BDX8, and we believe positioned Extreme for further deployments in public and private cloud internet exchange and high performance competing customers.

In Q3, we were honored to receive yet another industry award when the BDX8 was named Network Computings Data Center product of the year for 2012.

Both the BDX8 and Summit X670 products are award-winning products and are the basis for our deployments of our open fabric architecture.

We believe this architecture and the associated open fabric products are key to scaling -- sailing next generation data centers and are the foundation for our software defined networking initiatives.

In addition to deployments for BDX8, we continue to drive additional open fabric architecture deployments with our cloud scale top abroad switch products.

In Q3 we saw higher demand for our X670 switch sales and we are pleased with these expanded customer deployments and the positive data center sales momentum.

As of Q3 we shipped our 10 gig and 40 gig optimized open fabric architecture products to over 300 customers.

During the quarter, we grew 10 gig shipments -- port shipments by 67%, 40 gig port shipments by 66%, over Q2 FY12.

Customer acceptance for these products showed strong data center growth for the Company and our deployments are exceeding recent industry analyst projections.

The E4G Cell Site Router family has also been positively received by mobility customers and associated channels in its first quarter of general availability.

We expect E4G products to be sold mainly through our established OEM sales model and similar to past mobility products from Extreme.

We also expect the E4G to be embedded as part of much a larger mobility solution offered by our network equipment partners.

As a result, we expect sales cycles for the E4G to be longer and less predictable and will include extended time for initial testing and acceptance by these channels before our products can be selected and demonstrated -- demonstrate subsequent market traction and revenue.

We have already been selected as a part of the RFRS architectures offered by key vendors in this space including [Cambrium] and Equinox.

These NEPs are actively including our products in their bids for back hall opportunities across key mobility areas such as private LTE customers, multi-tenant south side tower sharing customers and government public safety customers.

The Summit X440 Intelligent Edge is our next generation 1 gig and 10 gig campus product.

We announced -- since we announced the general availability of this product family in Q3 we've experienced very strong user acceptance and significant demand for education and other campus deployments.

The Summit X440 product family consists of 10 different models refreshing the majority of our non-data center stackable portfolio and enabling more competitive price flexibility and opportunity for margin improvement.

In combination with Extreme XOS automation and identity management and with integrated data plane features of our wireless LAN portfolio, the Summit X440 product family offers the quality of user experience required by campus customers who are dealing with the impact of users bringing their own devices to work and to school.

Beyond delivering what we believe is a best of breed product portfolio for mobility and cloud customers, Extreme continues to grow in visibility amongst our current and potential customer base.

In February, Morgan Stanley issued their periodic CIO survey showing Extreme increasing in awareness as an alternative to Cisco and citing an expected increase in Ethernet switching spend versus the previous survey.

In April, Goldman -- in a new Goldman Sachs survey reiterating the comments of their previous report said that Extreme continues to be increasingly considered by US CIOs as a top four vendor when purchasing equipment from someone other than Cisco.

Both of these reports help demonstrate the effects of our focus marketing activities along with the recent public recognition of our new products and are helping to drive increased market awareness.

After the end of the quarter and complimenting the accolades we received for our cloud offerings, we again received recognition by a Info-Tech research, a well-known analyst firm, for our campus offerings.

In their new campus report, Info-Tech identified Extreme as an innovator based on product and vendor capabilities, and placed Extreme higher in product capability than several other leading networking brands.

According to the Info-Tech research report dated April 2012, our products are described as being ideal for demanding networks but also have the ease of deployment and provisioning necessary.

Turning now to our execution in our key vertical markets we continue to win customers in the areas of cloud, mobility, education and campus verticals.

In the quarter we won Cloud 4Y, a managed services provider in Russia, which is deploying our data center products for cloud-based services.

In addition to the data center wins we already mentioned when discussing BDX8 other key data center wins included AMD in North America, who has deployed our gear for high performance 10 gig and 40 gig infrastructure, and CEB-Cia Energetica de Brazil who is also using our switching and wireless LAN in support of their network modernization overall.

In Korea, we also sold to SK Planet's Data Center which is the SK Telecom affiliate for content delivery, as well as smart communications in the Philippines for their mobile packet network.

And finally at Korea Telecom, which again selected Extreme for it's networks, we deployed products in support of their nationwide LT deployment.

New education deployments included Las Vegas City Schools in the United States, a leading university in Germany, Therafit School in the UK and the Bay of Plenty Polytechnic in New Zealand.

We also continue to drive competitive wins against strong incumbents in new enterprise campus deployments, including both the Russian Ministry of Regional Development, the Russian Ministry of Interior, and a major Romanian government entity.

And also Mainland Water in Taiwan and of course the Al Sudairy Test Diseases hospital in Kuwait, which also combined campus core switching, wireless LAN and data center all in one win.

Beyond the traditional campus deployments we are also building traction with physical security in the infrastructure space in market that demands high reliability and leverages the sophistication of Extreme's XOS.

Notable wins here included the Massachusetts Department of Transportation, with a shared public fiber optic infrastructure that leverages our X670 10 gig and EADS technology as well as the Bureau of High Speed Rail in Taiwan and several other global transportation wins.

As I've already mentioned we're focussed on driving sales execution needed to enable us to deliver revenue growth in FY13.

As such we're adding new sales leadership in key areas to refocus our market attack.

With Extreme's increased awareness and award-winning product portfolio we expect to attract experienced leaders with high-quality skills to help drive revenue growth at Extreme.

I'm pleased to announce that two highly qualified individuals have joined Extreme; one in the key position of VP for World Wide Channels and the other as our new VP of Sales for Asia.

In addition, we have also hired a very talented new country sales manager for India.

We are also actively recruiting for the new head of world wide sales and believe we will be able to attract a strong leader in this position.

Beyond these leadership positions, we are also adding resources who are experienced and skilled in data center sales and which we expect will accelerate our growth and data center revenue in FY13.

In summary, Extreme has now released new award-winning products with features that address our targeted vertical markets in the highest-growth market verticals.

We are continuing to build the customer awareness needed to enable our increased participation in customer deals for these key vertical markets.

We have completed the cost structure changes we believe are necessary to achieve operating income without revenue growth as evidenced by our profitability in Q3.

We are now focused on transforming our sales capability to deliver revenue growth which we expect assuming the execution of our current plans can provide increasing leverage to the bottom line and increasing free cash flow in FY13.

I look forward to keeping you updated on our progress over the next several quarters.

Now I'll turn the call back over to Jim to discuss guidance for Q4 in FY12.

Jim?

Thank you, Oscar.

There is no change to the guidance previously issued as part of our earlier announcement.

We estimate that our Q4 FY12 revenue will be in the range of $82 million to $90 million and fiscal year 2012 revenue will be in the range of $317 million to $325 million.

We also estimate that non-GAAP EPS for Q4 will be in the range of $0.07 to $0.11 per share.

And fiscal year 2012 non-GAAP EPS will be in the range of $0.22 to $0.26 per diluted share.

We will now open the call for questions.

Patrick, you can start the polling.

(Operator Instructions)

Please hold for our first question.

Our first question comes from Christian Schwab from Craig-Hallum Capital, Your line is open.

Great, thank you.

As we look -- now that you've had a little bit more time, Oscar, than when we spoke a few weeks ago, can you just walk us through your conviction level in the $82 million to $90 million guidance, how you got there, how you scrubbed through it, et cetera, if there is any more clarity you can add there, that would be great.

Sure, hi, Chris, I would be happy to.

So, one of the key things that I've done in order to get comfort on the guidance for Q4 is sit down with all of the sales leaders and get down to the sales -- the individual sub regional level as well because these regional leaders have sub regions underneath them to really understand where their expectations are in terms of the actual deals that are on the table, size of the deal, diversity of the deal.

Some of our business is statistical, so I like to understand the run rate of what we think.

And a lot of what I use is I look at our developing pipelines and I can see their pipelines have been growing really over the course of the last few months and it is a question of closing those deals.

So when I look at the pipelines and the sales cycles that are already entered around some of these larger deals and look at the timing associated with that I now have a much better view of where the sales team -- what the sales team can do.

I've also implemented a new deal desk process which is a much more rigorous process that enables all the functions to understand what sales needs in order to close deals so we can make sure we don't delay when actions need to be taken.

So that has given me a much better view of not only the pipeline that's out there, what they're working on, but what are the actions we need to take that the deals are closed and are closed on time.

And as we go along, my expectation is that we will have a much better view of what is materializing and what is not materializing so we can take action on the things that will and make sure we understand the things that won't.

I would assume after the Q3 results that we went into that with some measure of pessimism, is that accurate?

Yes, I think that you can say that.

I think that, you know, in my position I -- I'm -- I believe in trust but verify, and so I am, in addition to listening to what the folks have to say, I also am verifying that the things that they're saying really make sense from multiple angles including supply chain and all of the things that are connected to closing a deal.

Fabulous.

As we look to next year, you know, given Romley growth in 10G, possible accelerated growth in the switch market and the aggregate itself, greater adoption of, you know, the BDX8 product, in particular, would you expect your business to have typical seasonality or modestly better than typical seasonality as you look out to the next fiscal year?

Right, so that's a great question, because, you know, one of the things we did mention on the prior call, the call two weeks ago is that we had expected that we would be able to break some of that seasonality in Q3 and it didn't come through.

Right?

So not being one to over commit, right, but also not being one to believe that the past is an indicator of the future or I wouldn't be here.

My expectation is we're going to begin to see growth in 10 gig and 40 gig and you see some of the numbers we shared with you today about 10 gig and 40 gig growth.

We're very pleased.

It seems to be outpacing with some of the reports have set out there in terms of the growth of those technologies.

Of course, actual market share will be measured in the past, will be measured in the future, as opposed to forecasted, right?

So I think we get to see how everybody else did, but I'm pleased with the momentum of 10 gig and 40 gig and that is really what we're talking about when we talk about the BDX8 and SX70 and really all of the open fabric family of products.

So, as I look at that architecture, both in fabric architecture the things that we're doing in there and really indeed some of the new things that we expect to materialize as new servers come on line and the need for 10 gig to grow, I am expecting that we're going to see some growth there but I'm not ready to say we're going to break seasonality.

And then can you -- Jim, can you just remind us, so we're all on the same page, what typical seasonality would represent for you?

So for Q3 as we talked about in the last conversation, it averages about 11% down in Q3 as much as 15%.

Q4 tends to be the strongest quarter, and you know it is well win the ranges we're talking about here in terms of the guidance here that we've given.

And then Q1 and Q2, that's fine?

And Q1 tends to be a little bit softer.

You get the summertime in Europe and summertime in the US.

And then Q2 tends to be just the calendar year end is fiscal year end for a lot of companies, so there is a lot of budget flushes that go on in the capital equipment space, you know, in the December quarter.

So it's a pretty typical pattern, not just with Extreme but with a lot of high tech capital equipment companies.

That was great.

And then couple more questions, if I may, are you ready to break out exactly how much revenue you're doing in 10 gig and 40 gig, yet?

No not yet, not yet.

And then lastly, last question is, in the process of shareholder value, have you thought about now that we've got, you know, we have proven that we fixed the model in essence of the operating cost of the infrastructure space, to create profits at, you know, kind of levels where before you lost a lot of money.

Have you guys thought about using your significant cash balance to, you know, do a meaningful stock buy-back, or is that something the Board is not thinking about at this time?

No, I wouldn't say that's not something that the Board is not considering.

I think the board considers this and we've heard our investors over the course of the last few quarters, make commentary to this, and even in direct conversations with investors as well, I would not take it completely off the table.

We've made no decisions on this.

I'm sorry.

I have one other.

You have $1 million in payment for the building it looks like this quarter.

We're still looking to get the majority of the rest of the funds by the end of the calendar year.

Is that correct?

The earliest to a close would be the December time frame and we're expecting and I think that it's three months options that they have to delay it up to six months, so it's within that December to June window that it would close.

Okay.

Perfect.

Thank you.

Our next question comes from Rohit Chopra from Wedbush Your line is open.

I just want to get a sense of what you're doing now that you're sort of trying to be a little bit more involved in sales, what you're doing as far as quotas.

Are quotas being changed from some of the sales people?

Are there some increased promotions to make sure that you get in on the deal?

Maybe you can just tell us what specific changes you have made to the sales force.

Sure.

So I'm not a believer in changing quotas, but we're almost to the end of our fiscal year so we're going to ride our quotas out.

I don't think that's in the cards right now.

Certainly setting appropriate quotas for FY 2013 I think is part of what my process is right now.

I want to see quotas that reflect the growth that we're expecting out of the Company.

I think this would be something that everyone would expect.

No surprise there.

Regarding specific promotions, we have been running some promotions, we have been running bundled promotions, thing of that nature, wireless LAN with campus edge, for example, bundling our POE switches, especially our new POE switches with the high performance wireless LAN pieces that we have and we actually ran some of those in March and we saw some good traction.

So with our new channel VP on board now, she has a lot of experience with channels, as you can -- if you've read the press release on her you can see where she comes from, and her background is very deep in data communications and the channels associated with that.

So I'm expecting that promotion should be a normal part of what a company like us does in order to introduce new products or in order to make sure that we introduce new channels to our mix.

So I see promotions as a more normal thing, maybe not for Extreme in the past but certainly a more normal thing going forward.

Nothing unusual.

I wanted to ask, Jim, if you can give us a sense of what you're thinking for fiscal 2013, gross margins seem to have stabilized somewhere in the mid-50's, should we expect any change there, and can you actually get to double-digit OMs maybe by the end of next year is that a fair target?

Yes, with gross margins and we talked about this actually in Q2.

We think that we're in very good shape in terms of achieving the financial model that we've put out there and our target model to get to double-digit operating income.

Okay.

The gross margin, as we pointed out in our comments, actually crept up a little bit this quarter even on the lower revenue, so, yes, we think it is pointed in the right direction and, you know, we can get in that targeted range of 57% to 59% gross margins.

And, yes, the goal is double-digit operating income without, you know, any significant revenue growth.

It is the same thing we have been shooting for all along and we think we're pointing in the right direction.

Lastly I thought maybe you could just elaborate on some of the partnerships because I assume some of these deals are not always direct, right?

Some of these are coming from like Ericsson and Motorola, I think you have an alliance there, Nokia, Siemens, maybe you can just elaborate on maybe the growth of the partnership channel and maybe how you're getting into some of these deals and where we are.

Let me take that.

When it comes to the E4G product line, absolutely we're, as I said in my earlier statements, we're expecting the E4G to be primarily sold in an OEM-like fashion if I can say it that way.

Some of them will be resales but -- meaning the carrying the Extreme brand, and bring -- and when you carry the Extreme brand, it is Extreme branded product but it is going in as a part of overall larger solution, either for mobility or public safety or one of those types of verticals.

Whether it's mobility sitting backhaul products sitting behind a mobility network, 3G, 4G LTE network, or whether it's sitting behind a microwave infrastructure network or maybe a part of mobility infrastructure, or public safety infrastructure, either way we're expecting those products to be included as part of a larger solution set and so there's going to be an acceptance criteria for it.

Lots of testing in the labs so that the partner can be assured that everything works they expect the overall solution.

I think that's very normal.

That's the way we've been conducting a lot of our OEM-type sales, and, you know, those of you who know us well, you know that Ericsson has been a 10% customer, Motorola has been there, lots of different of those NEP's are in there, so it's roughly been about 15% of our business, for the mobile back bone piece, if I can say it that way and some of the other OEMs, and I think that, that we're expecting that to grow but it's going to be a lengthier sales cycle than normal than other products I can say because of the acceptance process and then eventually it will take off and be included in a solution.

What I'm trying to do is make sure investors understand that that's got a longer tail to the sales cycle but I think it is still a very viable product serving a very large market.

I want to make sure that's well understood.

When it comes to other channels, our other channels are recruiting channels and data center.

We're recruiting channels when it comes to coverage as well for geographic coverage.

We continue to drive new channels in our business and we continue to strive to make sure our channels get the best capability possible in terms of flexibility, as well as ease of doing business in the industry.

Indeed, I just met with our partner Advisory Council in North America and the feedback I've gotten is that by and large they are very pleased with the way Extreme does business with them and it is a question of doing more business with them.

Thank you.

Our next question comes from Jonathan Kees from Capstone Investments, your line is open.

Great.

Thanks.

Hi, Oscar, hi, Jim.

Can you hear me?

Yes.

Super, super.

I just wanted to start with a couple of housekeeping questions, if I may.

One, and my apologies if I missed this from earlier, what is the segmentation for the verticals, the three verticals, the amount?

So -- go ahead, Jim.

I believe the rolling fourth quarter was 27%, Jonathan.

Okay.

All right.

And then 10% customers for the quarter?

I don't know off the top of my head.

I don't know if Ericsson was one this quarter or not.

It would have been only direct one.

Those all would have been resellers or distributors.

Okay.

All right.

The -- and then let me move on to more a general questions here.

You're bringing some people, looks like they're joining the team right away.

You have Asia-Pacific, sales head, you have someone for India, I would think that they're going to hit the ground running.

Just an update in terms of when you think the metrics for Asia-Pacific will start turning around, now that you have some people on board?

That's a good question.

Look, I'm very pleased with the hires in Asia-Pacific.

Our new head of Asia-Pacific is former Cisco in Iron Port.

Iron Port you might remember was acquired by Cisco.

And I think he brings the right mix of understanding how to deal with end customers, especially large end customers at the data center level, and at the enterprise level, and also at the same time understanding how to work in a company of our size.

I think that's really important.

One of the things I'm trying to look very carefully is making sure that when we hire people from the industry, that, you know, if you've sold with a brand that's easy to carry into an account, it is a different kind of sale than if you're selling with a brand that's trying to break into an account and I look for people that are good hunters, good sales people, and I think he certainly brings that.

Our head of India that we just brought on board, he is also former Cisco emerging markets type of person, and so he understands how to hunt and located in the right place in India as well.

I think that puts us in a good position with those folks.

Now, when they come on board, these folks are very experienced, they can hit the ground running but they also have to take a look at their teams and make sure that their teams are in good shape.

These are leaders and so they work through people and they need to make sure that they're executing well.

Given that, my expectation is that we're going to see -- I'm holding our forecast there, you know, internally for Asia for Q4, but I'm expecting to see the growth from these folks come into FY 2013.

That is why retooling them quickly but making sure that we're hiring exactly the right people we need was an important task for us in the last few weeks and that is why we set our sights on that task.

The other person that we brought on board is a global channel person and she is very experienced with background coming from other competitors, way back when, in terms of Bay Networks and Nortel Networks, did an awesome job in those places and also at Ciena.

She brings deep relationships around the world and also deep knowledge of how to do business and how to structure our consistency of channels around the world.

That is one of the things I looked for her for her to accomplish because Extreme has had various types of programs around the world, North America being different than Europe and different than Asia and I'm looking for her to bring some consistency to the way we deal with channels around the world.

I think that these are strong individuals, we've taken our time to hire the right people.

But they're going to need their time to get on the ground and get things moving.

Fair enough.

And that makes sense.

Sounds like (inaudible) will start making a material impact is fiscal 2013.

Let me turn around and ask you about EMEA.

You're re-organizing Asia-Pacific.

You've already re-organized the US.

You've re-organized Latin America.

EMEA is the only region you haven't really touched from what I recall.

I know Europe is more of a macro issue.

You have differences between northern Europe and southern Europe.

But I guess, I'm just curious in terms of how you're approaching that are you taking a wait and see approach in terms of how the macro issues are developing there?

Or have you initiated anything similar to what you've done with the other regions in anticipation in terms of any softness there?

I mean, you know, there are a lot of companies who are reporting softness in Europe but there are also some companies reporting strength in Europe despite the macro issues.

So I'm curious what you're doing there.

Okay.

Good question.

So I'm not a wait and see kind of guy and I'm not in a wait and see mode.

I have to take into account that Europe is our largest region, did have a good year last year, and so their performance last year was good.

So this year they're facing a few issues but they are facing in pockets some sales execution issues that we'll deal with directly and so I'm expecting to make some changes where necessary especially where there are low performers.

By the way, what I would say, low performers across the Company in sales those are issues we have to deal with but also make sure the high performers are focused on ensuring they deliver, again, for FY 2013.

We have a sales team that by and large is a very good sales team.

We have pockets of places where we have to go fix a few things and in Asia specifically we had to bring some new leadership in place and in the case of channels, we needed to have consistency around the world and I think that that will drive the business overall and that will float the tide, which will enable everyone to rise as well.

So I think we're doing things and taking quick action on the things that need to get done.

Of course I still have the VP of World Wide Sales position that's open and I'm looking for the right leader with the right capabilities in terms of being able to get in front of the customers and be able to pull demand through our channels.

We honor our channels very much.

We think our channels have taken us to market in an excellent way but we also want to make sure that the customer solidifies for the channel the choice they want and that way we have an opportunity to influence directly the customer and the choices that they make in terms of cloud infrastructure, mobility infrastructure, and so on.

So we'll work, we want to be able to work with our channels, work directly with the customer, and have our channels fulfill and win more business with us.

Okay.

All right.

Great.

Makes sense there, too.

The -- can you update us in terms of any more clarity on mobility, macro issues, as you recall those, one of the reasons listed for that miss a couple of weeks ago and obviously that is not the majority -- that wasn't responsible for the majority of it, but is mobility still kind of challenged, or any further information on that?

Yes, so let me say this, right, mobility, the way we participate in mobility is the way a vendor participates in the rest of our business.

We're a component that goes into a larger mobility solution.

As a result of that, things come to us in terms of projects or they come to us in terms of verse write of orders, things of that nature.

And we do a forecast and the forecast is always based on what we're told by some of our mobility partners.

Based on that, what we've seen is we saw a bit of a small slowdown in Q2, our Q2, meaning the end of the calendar year.

That progressed into Q3, and then towards the end of Q3 it started to get a little better and we're starting to see it get a little better in Q4.

Again, I don't have ultimate visibility into the CapEx of the end service provider but I can tell you what I see in terms of the orders flowing our way and the pipeline that we're seeing.

That sounds encouraging.

Lastly, how about an update in terms of the sales cycle.

I mean, when we talked a couple of weeks ago when we had this call you talked about the sales cycle was longer than expected, and you're still trying to get your hands around it with the closure of the quarter.

Have you guys gotten your hands around it?

Do you have a good idea in terms of the sales cycle especially with the new products?

Yes, I think we're still -- I'm still looking at the sales cycle for Cloud operators and those types of more complex systems, more complex systems sales, probably in the 6 to 9-month range.

My opinion has not changed there.

I think it is bearing out in what I see in our sales teams and what they're going through.

Lot of them are RFP based, a lot of them are RFI first and then RFP, and so that adds a tendency-- there's a tendency there to add some time to the cycle.

At the same time one of the things we have been able to do is get into RFPs that are sort of I would say intercepted, so things that have already been running that we may not have been able to respond to before our products were GA, but we can respond to now.

There are some that are shorter in cycle, some longer in cycle, but in essence, I'm still holding to the 6 to 9 month cloud data center sales cycle.

Okay.

Great.

That helps.

All right.

I'll cede the floor.

Thanks a lot and good luck.

Thank you very much, Jonathan.

(Operator Instructions)

Our next question comes from Jeff Meyers from Cobia Capital, your line is open.

Great.

Thanks a lot, guys.

So I guess with the amount of deals that slipped out of last quarter, can you give us an update on any deals that might have closed already and how this quarter looks, you know, in terms of I guess maybe front end loading versus your typical quarter.

Yes, so let me compare it to last quarter, and, you know, on whole our April is much better April than we had in January in terms of actual bookings in the door.

So I'm pleased with seeing that.

Comparing it to a year ago quarter, you know, I don't have those figures in front of me so I don't want to venture a guess there but I'm pleased with what I've seen so far in terms of the momentum and the deals.

In other words, deals that should have closed at the end of the quarter, I'm beginning to see those beginning to close and booked, so that seems to be okay.

And I'm also seeing some other momentum, as well.

Great.

Thanks.

(Operator Instructions)

We have a question from Christian Schwab from Craig-Hallum Capital, your line is open.

Great.

I just thought I would slip in here quick last.

Just to follow up on that question given the strong start to the quarter, do you expect -- is it strong enough to change what you believe what is historical intra-quarter linearity?

I wouldn't be able to comment on that.

I think it's is too early for me to draw a conclusion about that.

Okay.

Great.

But strong start -- I guess the strong start, following up on the previous question, the strong start does that increase your conviction in your work on expectations for the June quarter, I guess?

It really -- at this point my conviction is the same as it was before.

Okay.

And it's good to have good indicators that what we think we can do are looking positive, right.

Great.

Thank you.

No other questions.

This ends our Q&A session.

I will turn it back to Jim Judson for closing remarks.

Thank you, Patrick.

Thanks, everybody, for participating in the call and I look forward to talking to you again at the end of next quarter.

Thank you.

Ladies and gentlemen, thank you for participating in today's program.

This concludes the program.

You may all disconnect.